On 21 October 2015, the Office of Foreign Assets Control of the US Department of the Treasury ("OFAC") issued a one-page guidance regarding the use of "false hit lists" by US persons and entities.
False hit lists comprise of persons or entities whose characteristics may trigger a match on OFAC's List of Specially Designated Nationals and Blocked Persons ("SDN List ") or any other prohibited transactions based on OFAC sanctions but who, after review, are determined not to be SDNs or blocked persons. Once such persons are added to the false hit list, a US entity's sanctions screening programme would usually suppress an alert which would have been associated with the individual or entity so as to streamline sanctions screening processes.
While it is common and legitimate practice for US entities to utilise false hit lists, OFAC reiterated that it is important for such US persons to implement periodic review and reassessment procedures to ensure that the false hit list remains up-to-date with changing US sanctions.
OFAC recommends the following guidelines:
- Involving sanctions compliance personnel in developing guidelines for, and ov ersight of, the functioning of false hit lists, including periodic reviews;
- In situations where additions or changes to an SDN List entry are similar to a false hit list entry, ensuring that alerts generated by screening hits in connection with the additions / changes to the SDN List are not automatically suppressed by the existing false hit list entry;
- Amending the false hit list, as needed, in response to updates to OFAC’s sanctions programs (including, for example, the rev ocation of general licenses, the implementation of new sanctions programmes and/or prohibitions, or enhanced restrictions on certain categories of transactions); and
- For direct customers who have an entry on a false hit list, ensuring that any meaningful changes to the customer’s information (e.g., a change in ownership status, business activity, address, date of birth, place of business, etc.) trigger a review of the false hit list entry.
The OFAC guidelines serve as a timely reminder for US entities to give due attention to dealings and transactions which could inv olve potential SDN-listed or sanctioned individuals or companies. In countries such as Myanmar, a number of individuals and companies still remain on the SDN List. Although false hit lists can be a useful tool in sieving out false matches, foreign investors looking to deal with countries that are subject to US sanctions should undertake rigorous due diligence prior to embarking on a transaction or investment.